THIS ARTICLE IS WRITTEN BY NICKY GOES AND MOURAD SEGHIR. NICKY ([email protected]) AND MOURAD ([email protected]) ARE CONSULTANTS FOCUSSING ON ANTI-MONEY LAUNDERING, PRIVACY AND TECHNOLOGY WITHIN RSM NETHERLANDS BUSINESS CONSULTING SERVICES. 

Financial institutions are facing increased scrutiny regarding their anti-money laundering (AML) compliance, with the inclusion of environmental and social governance (ESG) compliance under the sixth EU Anti-Money Laundering Directive (AMLD6). The directive expands the list of predicate offenses to include 22 offenses, including environmental crime and cybercrime. As a result, companies must broaden their AML compliance to incorporate not only anti-corruption and anti-fraud procedures but also identify and mitigate risks around environmental crimes and human rights violations.

Environmental crime, now a predicate offense under AMLD6, poses significant risks such as illegal dumping, wildlife trafficking, and illegal logging of pollution generating substantial profits that may be laundered through the financial system. Therefore, Financial institutions must identify and mitigate ESG-related risks and report suspicious activities related to environmental crime. To comply with AMLD6, entities subject to AMLD requirements must define their risk framework, taking ESG aspects into account. This means Financial institutions should include ESG-related risks in their organizational-wide risk analysis and policies and assess and mitigate ESG risks on a client level. It also implies that employees of these Financial institutions should be adequately trained to recognize ESG risks associated with their clients.

Meeting the New AML Requirements

In addition to the above changes, the AML package also presents other requirements, such as the evaluation of technology solutions to meet new transaction monitoring and screening requirements, managing AML resources, and training compliance staff. Adverse media screening must be strengthened to assess the AML risk of potential and existing clients. A rigorous approach to identifying and mitigating ESG-related illicit activity is also necessary.

Moreover, the AMLD6 addresses the issue of dual criminality, where a predicate crime may take place in a different jurisdiction than where the funds are eventually laundered. The directive introduces specific information-sharing requirements between jurisdictions, enabling connected offenses to be prosecuted in multiple member states. States involved will be working together to centralize legal proceedings by considering factors such as territory, nationality, country of residence of the offender, country of origin of the victims, and territory on which the perpetrator was found to determine the jurisdiction for prosecution.

Financial institutions must take a proactive approach to incorporate anti-corruption and anti-fraud procedures into their businesses while considering and identifying risks around environmental crimes and social behavior, including human rights violations. It is vital that entities subject to AMLD requirements define their risk framework, considering ESG aspects. 

Closing remarks

The recent sixth Anti-Money Laundering Directive has widened the scope of offenses that can be prosecuted, including the inclusion of "aiding and abetting" as a criminal offense. This means that both the legal entity and key decision-makers within an organization can now be held liable for criminal charges. 

This makes it essential for Financial institutions to incorporate ESG compliance into their AML frameworks to meet evolving regulatory requirements. FIs should consider broadening their compliance efforts beyond anti-money laundering, counter-terrorist financing, sanctions, bribery and corruption also include ESG compliance. This will allow them to identify high-risk client groups or activities and position themselves to meet the needs of a rapidly changing regulatory landscape. 

Financial institutions should also evaluate their technology solutions to ensure they meet the new transaction monitoring and screening requirements, manage AML resources, and provide training to compliance staff. Additionally, they should strengthen their adverse media screening to assess the AML risk of potential and existing clients and take a rigorous approach to identifying and mitigating ESG-related illicit activity. By taking these steps, Financial institutions can position themselves to comply with the AMLD6 and mitigate potential risks associated with money laundering and ESG-related illicit activity.